By Paul R. La Monica
One worry exits, another arrives -- and yet the stock market keeps on climbing.
This week brought the signing of a memorandum of understanding between the U.S. and Iran that may bring the war between the two countries to an end. But it also marked the arrival of Kevin Warsh as chairman of the Federal Reserve, an event that is bringing a momentous change in the way the central bank will operate.
From the outside, it's clear which matters most for the market. Despite a selloff Wednesday after Warsh's press conference, the Dow Jones Industrial Average was up 0.7% for the holiday-shortened week, while the S&P 500 index gained 0.9% and the Nasdaq Composite rose 2.4%. So far, June is holding up just fine for the stock market.
It's not hard to see why the Fed spooked the market. Gone was the on-the-one-hand/one-the-other-hand-isms of Jerome Powell, replaced instead with a confident, but terse, "The Committee will deliver price stability." Given the inflation readings of late, investors are now assuming that rate hikes, not cuts, will be Warsh's first order of business in 2026.
But that assumes that inflation remains high -- and the end of the war could cause the rate of increase to decline as quickly as it rose. WTI Crude, the U.S. benchmark, dropped 10.6% to $75.85 a barrel this past week, its lowest since March 4, while the average gasoline price in the U.S. fell below $3.99 a gallon, its lowest since late March.
While the core personal expenditures price index, which will be released on June 25, is expected to have risen 0.37% month over month in May, up from 0.2% in April, peak inflation may already be behind the market. The market suggests something similar, with the Bloomberg Inflation Sensitive Equity Total Return Index turning into an underperformer, according to independent strategist Jim Paulsen.
The economy, meanwhile, continues to hold up despite inflationary pressures. The final revision of first-quarter gross domestic product, due on June 25, is expected to come in at 1.6%, while the Atlanta Fed's GDPNow tool is pointing to growth hitting 3% during the second quarter. The most recent retail sales report showed much stronger than expected growth despite inflationary expectations -- and it wasn't just gasoline driving the increase. With Amazon.com's Prime Day sale starting next week, June sales could be strong as well.
Ultimately, earnings will have to do the heavy lifting. That hasn't been a problem so far. Profits for the S&P 500 were up 28.8% in the first quarter, according to FactSet. And the momentum is expected to continue for the rest of the year. Analysts are predicting a 22% increase in earnings per share for the second quarter and growth of 23.3% for the full year. Though earnings season won't really get started again for another month, releases next week will give investors a chance to assess the AI trade ( Micron Technology on June 24), the travel rebound ( Carnival on June 22), and the state of the housing market ( KB Home also on June 22).
"Ignoring the Fed and focusing on earnings is the most important thing to do at this point," says Sam Rines, macro strategist with WisdomTree. "If earnings move higher, the market moves higher. It's that simple."
And simple beats complex every time.
Write to Paul R. La Monica at paul.lamonica@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 18, 2026 16:23 ET (20:23 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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